Goldman Sachs Bearish on Canadian Dollar

The Canadian dollar is likely to be in for some weakness amid falling interest rates and slower economic growth, but keep an eye on rising commodity prices before selling the local currency short in the near-term, strategists say.

The Canadian dollar will face some downwards pressure as evidence mounts that Canada cannot decouple from the U.S. economic slowdown, Goldman Sachs said in a strategic report.

The report said:

As the U.S. slowdown turned more severe in the second half of 2007, and into a recession in the first half of 2008, the support from commodities became insufficient to counter increasingly large negative direct macro spillovers from the U.S.

Canada is now experiencing a moderation in economic growth, with GDP up only 0.2% in the fourth quarter. The Bank of Canada has slashed interest rates by 50 basis points to 3.5% to help boost the economy, widening the country’s interest rate differential with a number of countries.

Goldman Sachs said:

Given that the Canadian data picture now appears to be at an important turning point, we think it makes sense look for fresh ways to short the Canadian dollar on a tactical basis. That said, we are holding off on initiating new trades for the moment due to the recent run-up in commodity prices.

Some trades to consider in 2008 are selling equal parts in the Canadian dollar, British Pound or U.S. dollar in favor of the Brazilian Real, Czech Koruna and Russian Ruble.

Comments

[SavCD:]

I have found it very profitable to always bet against GS recommendations. The last was their projection late in the year for Gold to fall 15-20% early this year. I bought based on their negative recommendation.

2008 Mar 07 08:12 PM

[Rock N Roller:]

interesting It's been said that if the U S sneezes Canada gets a cold. BC has Pneumonia right now in the forestry sector. I think GS is right this time, but I'll be watching.

2008 Mar 09 03:15 AM